Opening Day 2011!
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In This Issue.

* Eurozone inflation moves higher again!

* U.S. Consumer Confidences plunges!

* Currencies rally VS dollar.

* China to stem renminbi's rise VS dollar.

And, Now, Today's Pfennig For Your Thoughts!

Opening Day 2011!

Good day. And a Tub Thumpin' Thursday to you! It's Opening Day! It's finally here! So beat the drum, and hold the phone, the sun came out today. We're born again, there's new grass on the field! I just get goose bumps thinking about Opening Day!

Yes. heeeeeeee's baaaaaaacckk! It sure feels good coming home from spring training and not have "something" wrong with me! I spent some great time with the family, and then my good buddies, and watched a ton of baseball! So. I'm all recharged, and ready to take on the task at hand, which is this daily letter. I sent Chris a note before I left, that I think he left out of his notes. and it said, "in the past, we always joked about how when "Chuck was gone" the currencies would rally. I said, to that. "so let the rally begin" as I walked out the door.

Now, I have to admit that I did check from time to time what was going on with the markets while on vacation, so I wasn't completely surprised to see that the currencies had indeed rallied, while I was gone! March has been a very volatile month, for the currencies and commodities, including Gold & Silver. But, on the last day of the month, they are stronger than they were at the beginning of the month.

Front and Center this morning, we saw Eurozone inflation moved well above the European Central Bank's (ECB) ceiling target of 2%, printing at 2.6% for March, and increase from February's printing of 2.4%... The 2.6% inflation rate is the fastest move in inflation since October of 2008, and, for those of you keeping score at home, March's 2.6% inflation rate marks the 4th consecutive month of inflation exceeding the ceiling target.

This news has the euro rising over 1.42, and is really putting the pressure on the ECB and ECB President, Trichet, to hike rates, which everyone and their brother now believes will happen soon.

I have to say that this pending move by the ECB has really opened some eyes around the world. For the first time in some time, interest rate differentials are going to come back, and be a force to reckon with. Sure, Australia, Brazil, Norway, Sweden, have all raised rates in the past year and more, but if the ECB would raise rates, it would mean that the first MAJOR currency (dollar, yen, euro) has raised rates, and the rate differential between the euro and the other two (dollars and yen) would increase. This opens Pandora's Box of rate differentials, and really highlights the fact that there are other currencies out there, besides euros, that already have rate/yield differentials VS the dollar and yen. And then the next thing you know, we have an all out assault on the dollar and yen again. As Chris told you, the Carry Trade is going to be the Cat's Meow (ok I said that!) again!

And then we had U.S. Consumer Confidence plunge, printing an index number of: 81.1 in March. The fall was from an index number of: 97.5 in February. This print of 81.1 represents its lowest level in five months. Seems the rising gas prices at the pumps is causing consumers to lose confidence. Hmmm. it's about time, I would say. and then just wait till the Gov't pulls the rug out from under stock prices.

We also saw the January's S&P/Case-Shiller 20-city composite home price report fall for the seventh straight month, though dropping by a smaller-than-expected 0.2% on a seasonally-adjusted basis from December (market expectations were for a 0.45% decline). The thing that really scares the bejeebers out of me, is the fact that the monthly decline brings the index within one point of the recessionary low seen in May 2009! And. 11 metropolitan areas included in the measure dipped below the troughs seen during the recession.

And then, what do we have here? OK. I'll let you decide, and then we'll meet up again below, to see if we agree on what this all means. first of all. My good friend, Sean Hyman, sent me this last night. FDIC's Bair admits that low interest rates has caused a "bond bubble". And then reader, Scott, sent me this note this morning. "Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., said Treasuries "have little value" because of the growing U.S. debt burden. " So. what do you think? Could this be. you decide, quick!

OK. I'm sure you all have now come to the thought that Chuck was bang on with his Treasury Bubble theory / call, and when people like Sheila Bair, and Bill Gross, see it, then it just puts that theory/ call on terra firma, eh? Hey! Even a blind squirrel can find an acorn, folks, so I'm not patting myself on the back here, I'm just pointing out that I was the first to call a Treasury Bubble on the horizon, and now others are seeing it too! And like I said above regarding stocks. just wait until the Gov't pulls the plug on the bond buying.

Of course, I've also said that we'll see QE3. And here's the thing to remember. QE2 didn't happen right after QE1, and so QE3 will not come along until the Fed Heads see that unemployment isn't improving, mortgage rates are rising because of Treasury yields rising, and stock prices are falling through the floor. later this year? Probably, but with all the Quantitative Easing that's been put into the system, we could be looking at early next year.

Enough of that! Let's look at some of the nice gains in the currencies overnight. The Aussie dollar (A$) has moved well into the $1.03 handle, and the Brazilian real gained 1% yesterday, pushing the real to the strongest level VS the dollar, since August 2008. OK. we all remember what happened in August 2008 (it really began in July 2008), when all the walls came crashing down, and Humpty Dumpty has never been put back together again, here in the U.S. So. if we go back in time, (like Wayne and Garth, dededo, dededo) we will see that the Brazilian real was kicking tail and taking names later. But the real wasn't the only currency doing so, VS the dollar. In July of 2008, it looked like the end was near for the dollar, but then along came the financial meltdown.

And that's interesting because now, today March 31, 2011, the A$ is stronger than it was in July of 2008. along with most currencies. (excluding the euro, and sterling which have their own problems to deal with) So. is the dollar on the tracks once again to oblivion? I doubt it. While the tracks seem to be greased right now, there will be a detour at some point, because the U.S. cannot have everyone heading to the exit doors on the dollar at the same time, they need all the Central Banks and foreign investors to stay around, while they deficit spend. and deficit spend, and deficit spend. Hey! Did I mention deficit spending?

And. here's one thing that could put a damper on Chinese renminbi gains VS the dollar, thus supporting the dollar. Chinese banks must cut their short dollar positions and also reduce their short-term foreign debt holdings, the currency regulator said on Wednesday.

The tightening of existing restrictions is the latest step by China to cut the scope for inflows of capital betting on faster yuan appreciation. In a short statement on its website, the State Administration of Foreign Exchange said it wanted to prevent illegal capital inflows and protect national financial security.

Chinese banks with dollar-short positions of $2 billion or more as of November 8 must reduce them by 60 percent, SAFE said. Banks with a dollar short of $2 billion or less must cut this position in half.

Posted 03-31-2011 10:39 AM by Chuck Butler